ISLAMABAD: The holders of Free Tax Numbers (FTNs), including government entities/organizations (filers and non-filers), have caused a revenue loss of Rs18,934 million during 2019-20 as many declared "exempt income".
A report of the Federal Board of Revenue (FBR) on FTNs revealed that the government entities mostly operate under a Free Tax Number (FTN) that is allotted to them by the FBR in place of the National Tax Number (NTN).
For the purpose of estimation, a search was carried out within the FBR database to identify the FTN holder entities. A total of about 6994 FTN holders appeared, out of which 218 had filed their returns for the period under review, and the rest were non-filers.
To estimate tax expenditure under this section, a selection was made from out of these 6994 FTN holders, after going through the complete inventory and selecting, using best judgment, only those which appeared independent or semi-independent in nature, of commercial or semi-commercial orientation, and possibly engaged in income earning activity.
Purely service oriented or administrative entities under direct control of the government were dropped from the selection.
The selected entities were then further divided between filers and non-filers, and cost of exemption was estimated. It, however, may be noted that overall reliability of this estimate may be considered low-to-medium, as no hard and fast test or bases were available for making the selection of entities for estimation.
Many different categories of government organizations - public universities, text-book boards, provincial pension or social security funds, etc. - that have already been given exemption expressly and by name under the Second Schedule were excluded from estimation here.
The FBR report stated that the 149 FTN-holder government entities which are filing return in the period under review were selected for this component from out of 218 filer entities. Out of these, only 52 reported any income, while the remaining declared zero income. Tax expenditure is calculated by applying the benchmark corporate rate on the reported incomes, or minimum tax where loss is declared. The revenue loss due to this totaled Rs5,143 million for the period under review.
There are 159 non-filers, FTN-holder government organizations that appear to be of income-generating nature, but not filing any return. Hence, information in their case regarding income earned is not available. However, tax expenditure has been deemed as availed for these 159 cases, therefore, average tax expenditure has been taken for these entities equal to the average tax expenditure calculated in the case of filer FTN holders. The revenue loss to the FBR amounted to Rs4,358 million.
Certain entities of government or semi-government nature, which are non-FTN holders, are also found to be claiming exemption in their returns. These exemptions are included under this component. FTN-holder government organizations not filing returns where estimation is based on information available on official website. They have caused revenue loss of Rs8,262 million to the national kitty.
Copyright Business Recorder, 2020
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